Banxico raises interest rate to a record 9.25% to contain inflation

Banxico’s measure comes after general inflation reached an annual rate of 8.76% in the first half of September. The central bank’s inflation target is 3% plus/minus one percentage point.

In their monetary policy meeting statement, the members of Banxico’s Governing Board stressed that given the acceleration of global inflation there will be high interest rates for a long time.

“Timely indicators suggest that global economic activity has continued to slow down in the third quarter. Global inflation continued to rise in an environment where imbalances between demand and supply persist in various markets and food and energy prices are still high,” the central bank said.

Inflation expectations continue to rise

Forecasts for inflation continue to rise. The Governing Board again modified the inflation forecasts for the following quarters upwards.

The “peak of inflation” will last the rest of the year, since the central bank estimates that inflation will be 8.6% in the third and fourth quarters of this year.

For the first quarter of 2023, inflation is expected to be 7.9% and for the last quarter it will be 4%. The inflation target, which is 3%, could be reached until the third quarter of 2024.

How does it impact debtors and savers?

When Banco de México raises the interest rate, it will be more difficult for the government and individuals to request financing, especially variable-rate loans.

The objective of this measure is to restrict consumption and thus lower inflation. By restricting consumption, people are encouraged to save that money and invest it in instruments such as Cetes .

This week, the Cetes auction achieved an excess demand. Cetes at 28 days will give yields of 9.25%, Cetes at 91 days have yields of 9.75%. Cetes at half a year or 175 days have a guaranteed return of 10.44% and Cetes at one year of 10.93%.

The yields are already much higher than inflation, so they become a valuable instrument for investment.